Steely Show Ahead

Steel companies are expected to post better sales volume growth for the quarter ended December 2013 as compared to what they had done during the year ago same period.  Besides the seasonal impact, one of the factors that will help companies to increase sales volume is the depreciation in the value of the INR, which led to higher import substitution. We may also see some impact of a price hike affected by steel companies at the start of September 2013. The overall impact of the increase in volume and realisation will come in the form of the average revenue growth for the top five steel companies which could be anything between 12 to 14%.  JSW Steel is expected to post the highest sales growth which will include the impact of its merger with the JSW Ispat. 

Aggregate EBITDA and EBITDA margins companies in the sector are also expected to improve on a yearly basis due to better sales realisation and a boost from the Tata Steel Europe, which will be EBITDA positive this quarter as compared to a loss it reported in Q3FY13. Moreover, prices of key raw materials used in steel like coking coal and iron ore have exhibited little change on a yearly basis. For Q3FY14 prices of iron ore stood at around USD 136/tonne and that for coking coal stood at USD 141/tonne. Overall, steel companies will post an EBITDA growth of around 40% this quarter. 

Net earnings of the sector will rise by around 30%, primarily supported by the better earnings from JSW Steel and Tata Steel. The expected results which are likely to be on the better side are already reflecting in the performance of the BSE Metal Index, which has gained 19% during September – December 2013. Tata Steel, JSW Steel and SAIL have gone up 56%, 39% and 45% respectively in the quarter ended December 2013.